iShares MSCI World Islamic UCITS ETF (ISWD) – Fundamentals, Features, Analysis, and Investing Strategy

Introduction to iShares MSCI World Islamic UCITS ETF (ISWD): ​​

Discover the iShares MSCI World Islamic UCITS ETF (ISWD), an exchange traded fund by Blackrock, providing access to globally listed halal stocks. This ETF tracks the MSCI World Islamic Index, deliberately excluding companies associated with prohibited activities such as gambling and alcohol. ISWD offers broad global diversification. It is tradable on stock exchanges and potentially pays dividends. However, be aware that it incurs some costs and is subject to market risks.

What are you investing in?

The iShares MSCI World Islamic UCITS ETF (ISWD) is an exchange-traded fund that aims to track the performance of the MSCI World Islamic Index. As such, it exposes companies from developed markets worldwide, dealing primarily in equity securities and conforming to certain Islamic investment principles. Operating within the realm of an equity benchmark index, ISWD may expose investors to the risk of underperformance compared to fixed income investments or those tracking other markets.

Specific information about sector allocation and individual holdings of ISWD isn’t provided. However, considering the equity index research provided by MSCI, the fund’s holdings might be diversified across various sectors and regions within the MSCI World Index. The MSCI World Index represents global equity markets, encompassing companies from multiple industries and countries.

This review will compare ISWD with the Wahed Dow Jones Islamic World ETF (UMMA), as both have a global mandate while employing derivatives as part of their investment strategies. In this comparison, IGDA and WSHR will not be featured, as these ETFs focus more on developed markets.

Top Holdings as of 18 August 2023

Reference: IBKR trading

The top 10 holdings in ISWD account for 36.54% of the portfolio, indicating a relatively concentrated allocation in these holdings. Investors should be aware of this concentration when considering ISWD for their investment portfolio.

In comparison, UMMA’s top 10 holdings make up 35.48% of its portfolio, demonstrating a slightly lower concentration than ISWD. This suggests that UMMA invests less heavily in its top holdings compared to ISWD.

How do you grow your money by investing in iShares MSCI World Islamic UCITS ETF?

The primary objective of ISWD is to grow investors’ capital by investing in the constituents of the iShares MSCI World Islamic UCITS ETF, thereby replicating its performance. As the companies in the index grow and generate profits, the value of the fund’s investments may increase, leading to potential capital appreciation and higher returns for investors. However, it’s important to note that the value of the fund’s investments can also decrease, resulting in potential losses.

Start investing in ISWD through IBKR now! Click here to open an account! Then read our guide here on the steps to buy this ETF!

What makes iShares MSCI World Islamic UCITS ETF Shariah Compliant?

ISWD follows the methodology of MSCI when it comes to Shariah screening, and this involves two filters:

• Business Activity Screening

Sharia investment principles do not allow investment in companies which are directly active in or derive more than 5% of their revenue from the following activities (“prohibited activities”):

• • Alcohol
  • Adult Entertainment
  • Cinema
  • Cannabis
  • Conventional Financial Services
  • Defence / Weapons
  • Gambling / Casino
  • Hotels
  • Music
  • Online Dating
  • Pork related products
  • Tobacco

Reference: https://www.msci.com/eqb/methodology/meth_docs/MSCI_Islamic_Indexes_Methodology_May2019.pdf

• For Financial Screening,

Sharia investment principles do not allow investment in companies deriving significant income from interest or companies that have excessive leverage. MSCI uses the following three financial ratios to screen for these companies:

What’s the difference between the Islamic Index series and the Islamic Index M-Series?

The Islamic Index Series uses ‘total assets’ as the denominator when calculating the financial screening. On the other hand, the Index M-Series uses the ‘36-month average market capitalisation’ of the stock.

Reference: https://www.msci.com/eqb/methodology/meth_docs/MSCI_Islamic_Indexes_Methodology_May2019.pdf

ESG rating of iShares MSCI World Islamic UCITS ETF:

Collected Data of 18 August 2023 Reference: Refinitiv

An impressive overall ESG score of 78 signals that ISWD strongly aligns with Environmental, Social, and Governance (ESG) principles. This means the ETF prioritises sustainability, social responsibility, and sound governance in selecting its investments. For those interested in responsible and sustainable investing, a score of 78 is a promising indicator.

• Environmental score: With an environmental score of 75, ISWD’s portfolio companies generally demonstrate commendable environmental practices. This encompasses areas like carbon emissions, resource management, and minimizing their environmental footprint.
• Social score: An outstanding social score of 80 reveals that the companies in the ETF excel in social responsibility. This includes factors related to fair labor practices, diversity and inclusion, community engagement, and positive social impact. A score of 80 represents a solid commitment to making a positive societal difference.
• Governance score: ISWD’s governance score of 76 signifies that the companies in the ETF generally exhibit sound corporate governance practices. This encompasses areas such as board structure, executive compensation, and transparency. A score of 76 reflects a robust level of governance.
• Controversy score: The lower controversy score of 40 suggests that some companies in ISWD’s portfolio have been associated with controversies or ethical issues. Investors must conduct further investigations to understand the nature of these controversies and their potential impact on the fund’s holdings.

Industry Sector

Collected Data of 18 August 2023 Reference: IBKR

In comparing ISWD with UMMA, we observe that both funds place significant emphasis on the technology and energy sectors. However, UMMA shows a stronger focus on healthcare and industrials, while ISWD allocates more to basic materials, consumer cyclicals, and consumer non-cyclicals. These differences in sector allocation could influence investment decisions based on individual preferences and market outlooks.

• Technology: ISWD has a slightly lower allocation to technology at 29.99%, compared to UMMA’s 32.74%. Although both funds emphasize this sector, ISWD’s exposure is marginally smaller.
• Healthcare: ISWD allocates 15.79% to healthcare, while UMMA allocates 20.49%. This higher allocation indicates UMMA’s stronger focus on the healthcare sector.
• Energy: ISWD and UMMA have similar energy allocations, with both at 15.19%. This demonstrates their mutual confidence in the energy sector.
• Basic Materials: ISWD allocates 11.26% to basic materials, compared to UMMA’s 8.89%. Here, ISWD shows a higher allocation.
• Consumer Cyclical: ISWD has a 9.4% allocation to consumer cyclicals, slightly lower than UMMA’s 10.56%. UMMA has a marginally greater focus on this sector.
• Industrials: ISWD allocates 9.09% to industrials, while UMMA allocates a more significant 13.55%. This highlights UMMA’s stronger emphasis on industrial companies.
• Consumer Non-Cyclical: ISWD’s allocation in this sector is 5.17%, compared to UMMA’s 8.91%, indicating a higher focus by UMMA.
• Financials: ISWD allocates 2.32% to financials, more than UMMA’s 1.36%, showing a slightly greater emphasis on financial companies by ISWD.

Country Allocation as of 18 August 2023

Reference: Interactive Brokers Trading App

Based on the information on the country allocation for the iShares MSCI World Islamic UCITS ETF (ISWD) as of August 18, 2023, the ETF aims to offer exposure to a diversified global stock portfolio while adhering to Islamic finance principles. We observed three key points in our analysis of ISWD’s country allocation compared to UMMA:

• ISWD allocates a significant 63.41% to U.S. stocks, unlike UMMA, which has a more balanced portfolio. The largest geographical allocation in UMMA is Switzerland at 13.35%. UMMA demonstrates a more effective geographical diversification strategy, particularly as it includes the Wahed FTSE USA Shariah Nasdaq ETF, which is solely focused on U.S. stocks.
• Interestingly, ISWD’s second-largest allocation is to French-listed stocks, a stark contrast to UMMA’s emphasis on Japan. This highlights a strong geographical diversification approach by both ETFs.
• Both ETFs allocate a similar weight to UK-listed stocks, likely driven by the potentially higher returns associated with these stocks.

Lipper Leader Rating

Collected Data of 18 August 2023 Reference: Reference: Interactive Brokers Trading App

Analysis of iShares MSCI World Islamic UCITS ETF NASDAQ

Collected Data 18 August 2023 Reference: IBKR

Sharpe ratio of 0.18% for both the 1 year and 3-year periods.

Imagine you have two cars (or investments) to choose from for a road trip.

Car A (ISWD) has a Sharpe Ratio of 0.18%. It’s like a bumpy ride with many stops and starts, especially when considering the road’s risks. Car B has a higher Sharpe Ratio, say 0.40%. This car provides a smoother and more enjoyable ride, even considering the road’s challenges. In this case, Car B (or the alternative investment with a higher Sharpe Ratio) is a better choice because it offers a more comfortable and rewarding journey in terms of returns for the risks you take.

Sortinio Conclusion iShares MSCI World Islamic UCITS ETF

Sortino Ratio (0.17% for both one year and three years):

Please think of the Sortino Ratio as evaluating your car ride, but it focuses only on the terrible traffic jams. A lower Sortino Ratio, like 0.17%, means the ride (or investment) hasn’t been smooth, especially with heavy traffic.

Treynor Ratio Conclusion of iShares MSCI World Islamic UCITS ETF

Treynor Ratio (0.98% for one year and 0.94% for three years):

Think of the Treynor Ratio as a measure of how much fun you have on a road trip. A higher Treynor Ratio, like 0.98%, means you’re getting more enjoyment and rewards for your risks.

Tracking Error Conclusion of iShares MSCI World Islamic UCITS ETF

Think of a Tracking Error like how closely your GPS keeps you on a hiking trail.

• Investment A (ISWD) has a tracking error of 0.97% for one year and 1.13% for three years. It’s like your GPS sometimes veering slightly off the trail during your hike. It’s pretty close, but only sometimes on target.
• Investment B, on the other hand, has a much lower tracking error at 0.25% for both one year and three years. It’s like having a GPS that rarely leads you astray; it’s highly accurate.

In this shorter example, Investment B (or the one with the lower tracking error) is better because it stays very close to the intended trail with great accuracy, just like a precise GPS keeps you on the right hiking path.

Information Ratio (0.28% for one year and 0.07% for three years):

Imagine two basketball players:

• Player A (ISWD) has an Information Ratio of 0.28% for one year and 0.07% for three years. They score better than average, but not by much.
• Player B has a higher Information Ratio, say 0.50% for one year and three years. Player B consistently outperforms others by a significant margin.

In this shorter example, Player B (or the investment with the higher Information Ratio) is the better choice because they consistently outperform their peers by a wider margin, just like a standout basketball player who consistently exceeds on the court.

Risk/Reward (R/R) ratio Conclusion iShares MSCI World Islamic UCITS ETF

Think of two fishermen:

• Fisherman A (ISWD) has an R/R Ratio of 0.28% for one year and 0.34% for three years. He occasionally catches slightly larger fish, but it’s not a significant difference.
• Fisherman B has a much higher R/R Ratio, say 0.50% for one year and three years. Fisherman B consistently catches larger and more valuable fish.

In this example, Fisherman B (or the investment with the higher R/R Ratio) is the better choice because it consistently offers a more significant potential reward for the level of risk taken, just like a fisherman who always catches bigger fish on his trips.

Alpha Conclusion iShares MSCI World Islamic UCITS ETF

Alpha (0.25% for one year and 0.12% for three years):

Think of two students in a math competition:

• Student A (ISWD) has an Alpha of 0.25% for one year and 0.12% for three years. This student occasionally scores higher than what’s expected, but not significantly.
• Student B has a much higher Alpha, say 0.50%, for one year and three years. Student B consistently scores well above expectations.

In this example, Student B (or the investment with the higher Alpha) is the better performer because they consistently outperform expectations, just like a student who always excels in math competitions. When looking at the performance data, it is clear that Student B has consistently delivered exceptional results.

Beta Conclusion iShares MSCI World Islamic UCITS ETF

Imagine two boats on the market waves. When the benchmark boat sways left, ISWD sways just a bit more left (1.04 times more) for one year and a bit less lively (0.96 times) for three years. This shows how ISWD’s movements slightly outpace or lag behind the market’s rhythm, like a dance on the financial seas.

Bear Beta Conclusion iShares MSCI World Islamic UCITS ETF

Think of ISWD’s bear beta, which is 0.86% for one year and 0.94% for three years, as a shield during market storms. When the market takes a beating, ISWD might feel some raindrops, but it’s like having an umbrella that keeps you drier than most. For example, if the market fell 10%, ISWD might only drop around 8.6% for one year, showing its ability to weather the storm with less turbulence.

Bull Beta Conclusion iShares MSCI World Islamic UCITS ETF

Imagine the stock market as a race track. ISWD, with its bull beta of 1.13% for one year and 0.9% for three years, is like a race car revving its engine a bit higher than the average car on the track. When the market speeds ahead, ISWD can zoom ahead even faster. For instance, if the market gained 10%, ISWD might earn around 11.3% for one year, showing its potential for accelerated gains during bullish times.

 R-squared Conclusion iShares MSCI World Islamic UCITS ETF

Think of the R-squared as a measure of how closely two friends’ tastes in music match. Suppose their R-squared is 0.97% for one year and 0.95% for three years. In that case, their music preferences are almost identical, especially in the last year. So, the benchmark index danced to a particular tune with a 10% return. In that case, ISWD was grooving with about a 9.7% return for the one year, showing a strong alignment with its benchmark’s performance.

Adjusted R-squared Conclusion iShares MSCI World Islamic UCITS ETF

Think of the R-squared as a measure of how closely two friends’ tastes in music match. Suppose their R-squared is 0.97% for one year and 0.95% for three years. In that case, their music preferences are almost identical, especially in the last year. So, the benchmark index danced to a particular tune with a 10% return. In that case, ISWD was grooving with about a 9.7% return for the one year, showing a strong alignment with its benchmark’s performance.

Value at Risk (VaR) Normal Conclusion iShares MSCI World Islamic UCITS ETF

You’re planning a road trip and want to know the worst-case scenario for how much gas money you might spend. For ISWD, their Value at Risk (VaR) is like calculating that worst-case scenario for your budget. A one-year road trip is estimated at -4.8%; for a three-year journey, it’s -4.51%. This means there’s a high level of confidence that your expenses won’t exceed these limits, ensuring you’re financially prepared for your investment journey, much like you’d train your budget for a long road trip.

Value at Risk normal ETL Conclusion iShares MSCI World Islamic UCITS ETF:

Imagine you’re on a treasure hunt, and you’ve calculated the maximum possible distance you might have to dig to find the treasure. For ISWD, the Expected Tail Loss (ETL) is like knowing the average digging distance. A one-year treasure hunt is estimated at -6.27%; for a three-year adventure, it’s -5.95%. This means that if you dig deeper beyond your initial limit (like the Value at Risk), these are the distances you might need to go to uncover the treasure. It’s a way of understanding the potential extra effort or loss you might face in your investment journey.

Value at Risk Quantile Conclusion iShares MSCI World Islamic UCITS ETF

The Value at Risk (VaR) quantile is like a safety net for your investment. ISWD is set at -5.16% for one year and -5.44% for three years. Imagine you’re on a tightrope; these numbers represent how far the safety net can catch you if you lose your balance. They give you an idea of the maximum potential loss you might experience with a certain level of confidence while walking the investment tightrope.

Standard Deviation Conclusion iShares MSCI World Islamic UCITS ETF

The standard deviation measures how much an investment’s returns typically deviate from its average. For ISWD, it’s 12.15% for one year and 11.94% for three years. In simpler terms, it indicates the historical volatility of the ETF’s returns during these timeframes. Higher standard deviation suggests more significant return fluctuations, while lower values imply more stable performance.

Covariance Conclusion iShares MSCI World Islamic UCITS ETF

Covariance is like looking at how two friends’ moods sync up. When one is happy, the other often is too. For ISWD and its benchmark, their mood sync (covariance) has been around 27.52% for a year and 24.35% for three years. So, when the model does well, ISWD usually follows suit, and when it falters, ISWD does too. It’s essential when considering mixing them in your investment “friendship circle.” But remember, other factors must be considered, like how much they match (correlation) and your goals and preferences.

Variance Conclusion iShares MSCI World Islamic UCITS ETF

Consider variance to measure how much a student’s test scores vary from their average. The variance is higher if a student usually scores around 80 but sometimes gets 90 or 70. ISWD’s variance is 12.29% for one year and 11.87% for three years. This means ISWD’s returns have had some ups and downs, indicating more volatility in its performance during those time frames.

Correlation Conclusion iShares MSCI World Islamic UCITS ETF

Imagine the correlation between two friends’ study hours and their exam scores. If they both study a lot and get high scores or study less and get lower scores, that’s a strong positive correlation. Similarly, ISWD has a high correlation of 0.99% for one year and 0.98% for three years with its benchmark index. This means ISWD tends to follow suit closely when the benchmark performs well, indicating it tracks its benchmark effectively.

Downside-Deviation Conclusion iShares MSCI World Islamic UCITS ETF

Covariance is like looking at how two friends’ moods sync up. When one is happy, the other often is too. For ISWD and its benchmark, their mood sync (covariance) has been around 27.52% for a year and 24.35% for three years. So, when the model does well, ISWD usually follows suit, and when it falters, ISWD does too. It’s essential when considering mixing them in your investment “friendship circle.” But remember, other factors must be considered, like how much they match (correlation) and your goals and preferences.

Semi-Deviation Conclusion iShares MSCI World Islamic UCITS ETF

Think of semi-deviation as a gauge for measuring turbulence during a flight. A lower semi-deviation means the ETF’s ride through market turbulence, or negative returns, has been smoother. For ISWD, the one-year semi-deviation is 3.94%, and the three-year semi-deviation is 3.96%, indicating it has encountered relatively less turbulence during market declines. This suggests a potentially more stable performance when markets get bumpy, which could be appealing to investors looking to minimize downside risk.

Semi-variance Conclusion iShares MSCI World Islamic UCITS ETF

Imagine semi-variance as a tool to measure the intensity of rain showers during your outdoor event. Lower semi-variance means that even if it rains, the showers are light and won’t ruin your day. For ISWD, the one-year semi-variance is 15.5%, and the three-year semi-variance is 15.67%, indicating that the ETF has seen milder “rainfall” in negative returns during those periods. This suggests a potentially more resilient performance when the market

Is iShares MSCI World Islamic UCITS ETF regulated?

Yes, through being listed on the London Stock Exchange.

Conclusion

The analysis of the iShares MSCI World Islamic UCITS ETF (ISWD) reveals a nuanced investment landscape. With its strategic alignment with the MSCI World Islamic Index, ISWD provides investors with a unique opportunity to engage with a globally diversified portfolio while adhering to Islamic investment principles. Key findings from our review highlight several strengths and areas of caution for potential investors.

Strengths:

1. Robust ESG and Lipper Ratings: ISWD’s impressive ESG score of 78, coupled with its high Lipper ratings for Preservation and Expense, underscores its commitment to sustainability, social responsibility, and operational efficiency.
2. Favorable Risk-Adjusted Returns: Metrics like the Sharpe, Sortino, Treynor ratios, along with Alpha, Beta (including Bull and Bear Beta), R-Squared, Adjusted R2, and Correlation indicate a promising potential for risk-adjusted returns.
3. Resilience in Market Volatility: Indicators such as Downside Deviation, Semi Deviation, and Semi Variance suggest a level of stability, particularly during market downturns.

Areas of Caution:

1. Tracking Error and Information Ratio Concerns: The ETF’s higher tracking error and lower information ratio relative to some benchmarks may imply a need for careful consideration, especially for those seeking tight benchmark tracking or consistent outperformance.
2. Higher Standard Deviation and Variance: These factors point towards greater volatility in the fund’s performance, which might not align with the risk appetite of more conservative investors.
3. Value at Risk Metrics: The Value at Risk (VaR) Normal, ETL, and quantile metrics necessitate a thorough understanding of potential losses, particularly for investors prioritising capital preservation.

In conclusion, while ISWD presents an attractive option for investors seeking Shariah-compliant, sustainable investment vehicles with the potential for favorable risk-adjusted returns, it is crucial to weigh these attributes against individual risk tolerances and investment goals. Investors are advised to conduct in-depth research and consult with financial experts to ensure their investment choices align seamlessly with their financial objectives and risk profiles.